November 26, 2017 | Apathy

Two days ago we talked killer taxes. Then a couple hundred people came here to, shockingly, reveal what they earn. Then my Porsche-driving fancy portfolio manager buddy Ryan baffled us with some crazy stock formula so he could look clever. Just another laconic weekend at GreaterFool.

Let’s put some of these things together and see what squirts out. First, there’s no doubt a huge number of people you know, including house-horny family members, are financially pooched. Most don’t actually realize it. Debt is massive, taxes are rising and the real estate market’s surfing on an epic wave of credit. Rising interest rates and tighter lending regs in 2018 threaten that.

Canada is in worse shape when it comes to family debt than were Americans before the housing market there blew up 12 years ago. Our borrowing equals that of the Japanese when that country imploded in 1993. Here’s a chart the OECD turned out last week, to put things in perspective and scare you.

Private sector debt has doubled in a decade, and two-thirds of that is mortgages. Stats Canada says Canadians’ wages, after inflation is accounted for (and it’s historically low) haven’t increased in fifty years. This is why dads in the 1960s could support a family of four, buy a house, maybe a cottage, then retire comfortably on a single income. Today it’s a struggle for two working people to buy a condo, let alone have a kid. The cost of living – pushed ahead by taxes and real estate – led directly to a borrowing orgy once interest rates collapsed. Now it’s starting to unwind.

What’s the point?

Well, taxes are about to rise more in Canada because governments cannot live within their means, either. Soon your CPP premiums will be increasing, but higher benefits won’t arrive before today’s teens are tomorrow’s wrinklies. Real estate prices will take several years to melt lower, but as they do mortgage rates will be increasing. A Fidelity survey found 80% of people plan to “rely heavily” on scrawny public pensions to get by, and almost half of pre-retirees figuer they’ll need to dump their houses to raise cash to live on.

You have a choice. Do what everybody else is, and pray. Or not.

Given that all other countries have suffered a reversal when its citizens pigged out on this much debt, it’s reasonable we will, too. Credit is not infinite. When it begins to contract, those who need access to it on a routine basis are whacked. Time for another chart, just to belabour the obvious…

In three words: you must invest. Being apathetic, keeping the bulk of your net worth in one vulnerable asset, on one street in one city is now a really bad idea. Sure, own a house if you want one, but also strive to have a balanced approach to your finances – maxing out your TFSAs, taking part in your company’s matched RRSP, income-splitting with a spousal plan, opening a joint non-registered account and, above all, not being afraid of markets or the future. Sitting in cash, in GICs, in some bank bond fund, paralyzed after reading a doomer web site written by a guy who can’t afford a new Star Wars backpack is a dead end.

Invest in the kind of balanced, diversified portfolio this blog has oft suggested. Load up on exchange-traded funds, avoid [email protected], don’t gamble by flipping individual stocks (even weed) or buying cryptos, or being sucked into high-fee mutuals. Also recognize that while technical-analysis gurus like Ryan make a living riding the ebb and flow of markets, average investors do not. A 10% or 15% correction that lasts a few weeks or months will be irrelevant to your long-term future. Every shred of research has shown you’re better off investing today and staying invested rather than trying to time markets.

If you have a little money, open an online TFSA account and get started. If you have enough, look for a fee-based advisor. If you have an ‘investment’ condo plus a house, dump the sucker. If you have a variable-rate HELOC, start paying down the principal. If you’re self-employed, take salary instead of dividends, feed an RRSP and avoid an audit. If you’re sixty, take early CPP and push it into your tax-free account. If you’re twenty-five, wait to buy property unless you dwell in Halifax or Regina (and invest in fuzzy underwear). If you’re coming up to retirement, house-rich and asset-poor, bail.

Good luck. You have five weeks.

Garth Turner November 26th, 2017

Posted In: The Greater Fool

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